This application relates generally to merchant transactions. More specifically, this application relates to methods and systems for providing guaranteed merchant transactions.
Currently, about 31% of all purchases in the United States are made using payment cards, such as credit, debit, and stored value cards, with the remaining purchases being made in cash (about 38%) and by check (about 27%). Although it is not always evident to many consumers, there is a significant difference in different types of transaction types, in that some transactions are “guaranteed” to the merchant while others are not. As used herein, a “guaranteed” transaction is one in which a merchant is a party to the transaction and in which the risk of loss resulting from successful repudiation is borne by someone other than the merchant party. The most obvious guaranteed transactions are thus those made in cash, where the merchant receives the funds at the time of the purchase directly. Check-based transactions may also be guaranteed transactions when supported by services such as TeleCheck®. With respect to card-based transactions, debit transactions made using a debit card are generally guaranteed transactions because part of the transaction includes a transfer of funds from a customer's account to the merchant's account at the time of the transaction.
Credit-card transactions are the prime example of transactions that are not guaranteed. Such transactions typically proceed by having a customer present a credit card, with a receipt of the transaction being presented later by the merchant to a financial institution for payment. Settlement of the transaction involves an issuer of the credit card making the payment and extending credit to the customer, eventually recovering payment for the transaction, and perhaps also a finance charge, from the customer in accordance with a cardholder agreement. Until payment is made to the merchant, however, there remains the possibility that the legitimacy of the transaction may be repudiated, such as by an allegation that the credit card had been stolen, was forged, and the like. The lack of a guarantee thus puts the risk of being defrauded onto the merchant.
The protocol for executing transactions sometimes includes safeguards intended to reduce the chance of fraud, but such safeguards are of limited effectiveness. For example, a merchant may seek preauthorization for a transaction by using a network infrastructure to transmit some details of the transaction, such as the credit-card number and a transaction amount, to the issuer. Preauthorization may include verifying that the card number is a valid card number, verifying that the credit account identified by the card number has an open status, and verifying that the credit account has on “open to buy” status on the credit limit. In some instances, such as where an address is provided as part of an address-verification service (“AVS”), the preauthorization may additionally include verifying that the billing address for the credit account matches the address on file for the account holder. Similarly, for certain transactions such as non-face-to-face transactions, a card validation value (“CVV”), often printed on the back of the credit card, may be provided and verified, providing some additional measure of validation that the purchaser is in possession of the card.
Thus, if the transaction amount is less than the available credit on the account and the card has no derogatory marks indicating its theft and the like, the transaction may be authorized. Such authorization does not necessarily protect the merchant, however, from presentment of a stolen credit card whose theft has not been reported, or from a variety of other fraud schemes. Legitimate bases may be asserted by the true cardholder to establish that the use of the card was fraudulent, with the risk of such an assertion for every transaction being borne by the merchant. For this reason, some merchants may refuse to accept credit cards or may institute procedures to encourage the use of debit cards over credit cards, but such activities sometimes have the effect of discouraging consumers from purchasing at all from those merchants.
In recent years, dangers of fraud perpetrated on merchants have received even more attention because of the evolution of electronic commerce on the Internet, the increase in mail-order and telephone-order transactions, and the like. Such transactions are examples of transactions where the credit card itself is not even presented, and in this way are similar to more traditional telephone and mail-order purchases. A typical electronic transaction proceeds similarly to the transaction described above, but the credit-account number is provided by the customer rather than being extracted directly from the card. Confirmatory information, such as cardholder name, expiry date, and/or identification of a security code printed on the back of the credit card, may sometimes also be collected to try to limit transactions to being executed by the cardholder in possession of the card. A somewhat more sophisticated version of the security-code method has recently been proposed by allowing cardholders to register their cards with a secret password that is not printed on the card. With such a system, registered credit accounts may only be used when the secret password is also provided at the time of transaction. One such method is currently being promoted under the name “Verified by Visa.” While such techniques have the potential of adding greater security to online transactions, they require special registration by the customer and the maintenance of the secret password. In addition, the “Verified by Visa” method currently covers only a small set of chargeback reason codes (two codes), leaving a large number of other potential chargeback codes unaddressed.
There accordingly remains a general need in the art for methods and systems that provide convenient guaranteed transactions to merchants for credit transactions.